The Top 10 Regulatory Battles Facing Tech Companies In 2016

Bradley Tusk has a message for the tech industry in 2016: You can’t keep eating the world without pissing people off.

Tusk, Uber CEO Travis Kalanick's go-to regulatory fixer for nearly five years, has made a living spotting political battles, first as lieutenant governor of Illinois and a campaign manager for Michael Bloomberg, now as an investor who takes equity in startups in exchange for handling the headaches of legacy competitors and politicians who look to block them in polls and the courts.

Tusk, whose new fund Tusk Ventures works with startups including daily fantasy site FanDuel, General Assembly and Zendrive, is a firm believer in Marc Andreessen's famous 2011 declaration that “Software is eating the world.” And as startups build software and tools that are becoming critical to every industry from fashion to healthcare, Tusk expects those companies to face legal challenges, too.

"The amount of legal battles is going to increase every year because every company is tech enabled in some way," Tusk says. "The fights that Uber and Airbnb have had to have are making more startups realize that this will happen. Travis was the first to deal with this stuff because he had to, but it's something that founders need to accept and be proactive about."

Tusk stands to gain, of course, from being right on that count, as more battles means more business. But no one's watching the tech landscape to anticipate where the next battle will be more than he is. Forbes sat down with Tusk to go through the ten areas that he believes will prove the biggest regulatory battlegrounds for tech companies big and small in 2016. Here's Tusk's list, with explanations and Tusk's predictions for each below.

The 10 Biggest Tech Battlegrounds of 2016

Daily fantasy sports

The 1099 vs. W-2

Driverless cars

Drones

Short-term home rentals

Protectionism

Cannabis

Cryptocurrency

Lending

Healthcare

FanDuel CEO Nigel Eccles posed for the Jan. 19 2015 issue of Forbes.

1. Daily fantasy sports

The battle: After facing challenges from New York and Nevada that at least temporarily shut down their businesses in those states, daily fantasy sites like FanDuel and DraftKings will be involved in regulatory battles and legislative pushes across the country in 2016, Tusk argues, in by far the busiest regulatory battleground of the year for tech companies. It will be in states’ interests to resolve the issue quickly, Tusk believes, as the topic has the potential to influence more voters than other issues in tech, and given the investments in daily fantasy including companies such as Disney through its ESPN unit, Yahoo and more. (Tusk’s firm wrote an eight-page playbook on strategies for the upcoming battles for its client in the sector, FanDuel, which leaked to press.)

Prediction: Dozens of states put forth legislation to formalize the use of daily fantasy in 2016, with different levels of restrictions for the vendors in the space that will vary in their friendliness for the lead players including DraftKings,FanDuel, ESPN and Yahoo.

2. Contractors or full-time employees?

The battle: Uber and Lyft bore the brunt of worker classification battles in 2015, most recently when Seattle ruled to allow local employees to unionize. Tusk, who admittedly is a long-time Uber advisor who calls its billionaire CEO Travis Kalanick an “outlier” who had to learn how to handle regulatory battles the hard way ahead of many of his peers, believes that more such local government decisions and class action lawsuits will increase the pressure to create a new category of worker in between independent contractors filling out 1099 forms and full-time employees filling out a W-2.

Tusk points to Virginia senator and Democrat Mark Warner as one political leader who may take leadership in that push. Resolution of worker classification battles will have major impacts for Uber and Lyft, but also on-demand startups such as Handy, Instacart and Postmates. (Uber and Handy work with Tusk.)

Prediction: More left-leaning, union-influenced states push for unionization of the workers. “Purple” more centrist states push for a new category of worker.

3. Driverless cars

The battle: The California DMV’s draft rules to ban the testing and use of driverless cars could set off a wave of regulations across states, cities and towns nationwide. The volume of legislation and complexity created by so many rules would prove extremely limiting for companies interested in self-driving cars, including Apple, Ford, Google, Tesla and Uber.

The Detroit big auto interests may embrace a moratorium or slowdown of developments in the area, Tusk says, to ensure their seat at the table and make sure the technology is ready to go mainstream when they launch. Given the size of the interests involved and the amount of jurisdictions, the driverless car battle will play out at local levels until the federal government is forced to step in and introduce a federal standard, Tusk says. It could do so by threatening to withhold federal dollars for infrastructure, much like it did with raising the drinking age years ago, he argues.

Prediction: 2016 doesn’t see resolution, as local legislation will take about five years to reach critical mass. The year instead sees lobbying and state battles continue to ramp up.

Amazon's new drone. (Courtesy Amazon.com)

4. Drones, but the Amazon kind

The battle: A tangle of different local jurisdictions will also prove a headache for recreational drone-makers, Tusk believes, from park districts to the FAA. No startup in the space is big enough to lead the way yet on that side of the business, but the end-game could be another federal decision. Instead, Amazon leads the way on legislation for delivery and commercial drones first.

Prediction: Amazon (not a client) finds multiple municipalities that are more tech-friendly and does demonstration projects of its drone delivery in them, in preparation for a federal battle.

5. Airbnb and the short-term rental

The battle:Companies like Airbnb will face a judgment of whether to fully comply with existing regulations and not offer as many listings, such as of rent-stabilized or coop-banned homes, or continue to offer more and deal with more stringent regulation, Tusk believes. He notes that Airbnb only just fended off legislation aimed at limiting it in San Francisco in November.

Prediction: Airbnb and its competitors continue to fight and win regulatory battles like the one in San Francisco across more local jurisdictions, putting a drain on their growth and forcing them to revisit their overall strategy.

6. Protectionism

The battle:Big industries like agriculture and the auto industry will have more time to build a consensus to try to thwart startups offering new approaches to farming and food, as well as companies such as Tesla, Tusk believes. The startups increase lobbying efforts in response.

The battle:The growth of the cannabis industry and data and banking services around it should continue to challenge regulations, even in states that have already legalized medical or recreational marijuana use, according to Tusk. Investors will support regulations that allow banks to get more involved in the space, while other social interests will push back in legal measures intended to slow the tide of cannabis adoption. Cryptocurrency could prove a solution, but it could also further muddy the waters. (Tusk works with delivery startup Eaze in the cannabis sector.)

Prediction: 2016 sees a continued bifurcation of cannabis policies nationwide as left-leaning politicians and jurisdictions continue to pass laws making it clearer how to procure, advertise and invest in cannabis, while right-leaning interests and states enact their own legislation to try to prevent its adoption.

8. Cryptocurrency

The battle:A possible solution for issues with daily fantasy sports and cannabis, cryptocurrency startups will push for their “plumbing” to be adopted as a new method for handling transactions. That will pit these businesses like Coinbase, Circle and Ripple (a Tusk client) against the big banks, which won’t want to give up business to a new breed of challenger. The startups could potentially embrace regulation as a way of ensuring their own future.

Prediction: Statewide rules on cryptocurrency are contested in 10-12 states in 2016, with outcomes partially dictated by the dominance of the banking industry in each one.

9. Lending

The battle:Lending startups could be heavily affected by the result of the 2016 presidential election, Tusk believes, with Democrats less friendly to alternate forms of lending and companies making too much money off first-time homebuyers, and Republicans more hands-off about the market growing. Fannie Mae and Freddie Mac could, if they feel threatened, exert political influence to block startups like Earnest from continuing to grow too fast, as well as peer-to-peer lending startups.

Prediction: The lending world, both institutional and startup, watch the 2016 election closely, with a flurry of activity dependent on which party prevails.

10. Healthcare

The battle:The presidential election could also have major implications for startups in the healthcare space, Tusk says. Startups such as Clover Health and Oscar have both grown fast under the mandates of the Obama administration’s Affordable Care Act. A Republican federal government could attempt to rip the heart out of the individual mandate within the ACA, while a Democrat in the White House would uphold it. Conversely, a Republican government could be more friendly to ed tech startups given party positions on the privatization of education, while Democrats are less friendly to profit-making within learning.

Prediction: Like lending, the healthcare sector monitors the election closely in 2016. A Republican victor could lead to major challenges for startups working closely under the ACA.

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